Governor ‘uneasy’ about rising cost of living
The Bank held off raising interest rates this month (pic: Terry Murden)
Bank of England governor Andrew Bailey has admitted he is “very uneasy” about rising inflation and the decision not to hike interest rates earlier this month was a “very close call”.
He told MPs that the Bank wanted to see how the jobs market responded to the end of the furlough scheme.
Mr Bailey was joined by two other members of the Bank’s Monetary Policy Committee (MPC), Catherine Mann and Michael Saunders, to explain why they held interest rates at 0.1% this month.
Members of the nine-strong MPC voted by seven-to-two in favour of keeping rates unchanged at 0.1%.
Two members, which included Mr Saunders, were outvoted in calling for a rise to 0.25%.
Mr Bailey told the Commons Treasury Select Committee that he was concerned that inflation was rising above the 2% target but dismissed the idea that Britain could face a 1970s style wage-price spiral.
He also played down claims that he had expected the Bank to raise rates at its last meeting.
Andrew Bailey: the 1970s was much worse
“I’m very uneasy about the inflation situation – I want to be very clear on that,” he said.
“It is not of course where we wanted to be, to have inflation above target.”
The Bank warned higher energy prices would see inflation leap to 4.5% soon and hit around 5% next April, the highest level for a decade.
Pressed on the danger of higher prices prompting further wage demands, Mr Bailey said: “The structure of the economy, the structure of the labour market is very different to the 1970s.
“I tend to play down the comparison with the 1970s.
“Of course the inflation story in the 1970s was much worse, and persistent throughout the decade.”
He said that at its next meeting the Bank would know more about what had happened to the one million jobs that were still on furlough when the scheme ended.
Mr Saunders said that he voted for a rate rise due to the tight labour market and signs there has been a pick-up in wage growth but shrugged off comparisons to the 1970s.
“There is no risk of a wage price spiral in the UK,” he told MPs.
“Talk of a return to the 1970s is completely misplaced. The economy has changed in many ways since then.
“Having said that, the labour market is tight, with widespread skills shortages and we’ve seen the average pace of pay growth pick up to a little bit above the pre-pandemic pace and pay growth for new hires is picking up.
“I felt, given that evidence, that the likelihood of a pick-up in the general pace of pay growth was sufficiently high that we should start now to withdraw some of the stimulus that was put in place.”